1. Executive Summary
Hero Honda Motors (India) Ltd. is the Worlds biggest manufacturer of motorcycles (by
quantity). Starting as a bicycle company, it set up a 50/50 joint venture, set up in 1984 with
Honda Japan, to manufacture and sell motorcycles in India. Honda brought in the
technological know-how, and Hero the India presence, and the local manufacturing ability.
Hero Honda Motors captured the market for motorcycles in India, by offering an
affordable 4-stroke, 100 CC motorcycle, that was extremely fuel efficient.
They also established dealerships al over the country even rural areas . The strategy of
Hero Honda Motors was to capture the market by offering a superior product at an
affordable price, with excellent customer service. (Right cost)
The strategy has been successful to date and Hero Honda Motors (India) Ltd. is the
dominant market leader with over 50% of market share, ahead of closest competitors Bajaj
(Kawasaki JV) and TVS-Suzuki.
Recently new challenges have come up: in 1999, Honda has set up a 100% owned
subsidiary, which produces scooters, and represents a direct competitive threat.
New entrants have entered the market, offering cheap motorcycles from China.
The market is showing signs of maturing, with a reduction in business growth.
The companys response is a defend and fortify strategy: Hero has renewed the technology
JV with Honda, and have widened their offering a wider share of products.
They have integrated vertically, reducing cost drivers in the value chain.
At the same toiken, they have increased service levels, customer loyalty programs, and
have started addressing niche-markets (“Just 4her”)
The next step for the company, is to retain and expand shareholder value by either
expanding to new geographical areas and/or diversify in new businesses.
2. Company Background
Hero Honda Motors (India) Ltd. is the Worlds biggest manufacturer of motorcycles (by
quantity).
Hero Honda Motors (India) Ltd is a 50/50 joint venture, set up in 1984 between the Hero
group of India and Honda Japan.
It has been the worlds biggest manufacturer of 2-wheeled motorized vehicles since 2001,
when it produced 1.3 million motorbikes in a single year.
Hero Hondas Splendor model is the worlds largest selling motorcycle.
Splendor
http://www.herogroup.com/images/honda_splendor.jpg
At this moment, Hero Honda has set up over 2400 customer touch points, comprising a
mix of dealers, service centers across rural and urban India. Today, Hero Honda is an
amalgam of winning networks and relationships with internal and external stakeholders,
including Investors, Dealers, Vendors and Employees. These relationships have helped the
company hold on to the mantle of World No.1 for years in succession.
The company has 2 plants. One in Dharuhera and the other in Gurgaon, both in Haryana,
in the north of India. Hero Honda Motors (India) Ltd. specializes in dual use motorcycles
that are low powered but very fuel efficient.
Current models offered by Hero Honda Motors (India) Limited:
Products Model
Two-Wheelers Achiever CBZ* CD100SS CD DAWN
CD Deluxe Glamour Karizma Passion Plus*
Pleasure Splendor+* Super Splendor*
*Major model
2.1. The Hero Group
Hero Honda Motors (India) Ltd. started in the 1940s as hero Ltd., a family owned
business, manufacturing bicycle components. The Munjal family, owners of the group,
turned the company into the worlds largest bicycle manufacturer today. (It overtook Huffy,
the US. Manufacturer in volume in 1986).
Dr.Brijmohan Lall Munjal Chairman Hero Group
The Munjals roll their own steel, make free-wheel and other critical bicycle components
and have diversified into different ventures like product design and motorcycle
manufacturing.
The Hero Group philosophy is: “To provide excellent transportation to the common man at
easily affordable prices and to provide total satisfaction in all its spheres of activity”.
The Hero group vision is to build long lasting relationships with everyone (customers,
workers, dealers and vendors).
“Hero”, is the brand name used by the Munjal brothers in the year 1956 with the flagship
company Hero Cycles.
2.2. The Hero-Honda Joint Venture
In the year 1984, Mr. Brijmohan Lall Munjal, the Chairman and Managing Director of
Hero Honda Motors (HHM), headed an alliance between the Munjal family and Honda
Motor Company Ltd. (HMC).
Although not the first choice of partner, (Hero sought a partnership with Bajaj Auto,
Firodia Group and Kinetic Engineering Ltd. First) it was a successful choice: The alliance
became one of the most successful joint ventures in India. Honda provided the engineering
and technical know how, and Hero provided an extensive presence in the local (Indian)
market.
The J.V was renegotiated and extended until 2004 in 1994-1995.
This round of discussions was less smooth since Hero felt that the technical design support
of Honda was waning.
2.3. Post 2004
In the year 1999 HMC announced the establishment of a 100% subsidiary, Honda
Motorcycle & Scooter India (HMSI). This announcement caused the HHM stock price to
decrease by 30 percent that same day.
The Munjal family had to come up with some new strategic decisions as, HMSI and other
foreign new entry companies (amongs others Joint Ventures with Suzuki and Kawasaki)
were causing increased intensity of rivalry for HHM.
3. Industry and Competitive Analysis
3.1. What are the industrys dominant economic features?
3.1.1. Industry and Competitive Analysis. An overview
The current market size for motorized vehicles in India is estimated at 200 million units.
The industry of two wheelers ( i.e. motorcycles, scooters and mopeds) in India is the
dominant industry for personal motorized transportation, in term of volume:
In India it represents 77% of the total automobile market.
Worldwide, India is the second largest producer of motorized two-wheelers, after China.
(India produced approx. 4.3 million units in 2003, China approx. 12.1 million units.
Number three is Japan with approx. 2.3 million units) .
The first producers of motorized two wheelers started in the 1950s and concentrated on the
production of Italian model inspired scooters: i.e. Lambretta and Vespa.
The motorcycle manufacturing industry in India originated with Automobile Products of
India (API) which manufactured scooters.
API manufactured the Lambretta . Bajaj Auto Ltd. Quickly surpassed API and remained
the main scooter manufacturer until today -, through its association with Piaggio of Italy
(manufacturer of Vespa ).
The license raj that existed between the1940s to1980s in India, did not allow foreign
companies to enter the market and imports were tightly controlled. This regulatory maze,
before the economic liberalization, made business easier for local players to have a sellers
market.
Customers in India were forced to wait 12 years to buy a scooter from Bajaj.
The CEO of Bajaj commented that he did not need a marketing department, only a
dispatch department. By the year 1990, Bajaj had a waiting list that was twenty-six times
its annual output for scooters.
The motorcycle segment had the same long wait times with three manufacturers; Royal
Enfield, Ideal Jawa, and Escorts.
Royal Enfield made a 350cc Bullet with the only four-stroke engine at that time and took
the higher end of the market.
Ideal Jawa and Escorts took the middle and lower end of the market respectively.
In the 1980s , the market rules changed and minority Joint Ventures with ovberseas
companies became possible. Hero Honda, TVS Suzuki, Bajaj Kawasaki and Kinetic
Honda were added to the market scene.
The industry produced more models, different styles, and there was competition on prices.
The Japanese new technologies increase product reliability and overall quality.
3.1.2. Market Size and Growth rate
The Society of Indian Automobile manufacturers provides the following sales statistics: for
motorized two wheelers in India
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Category
Scooters 908,268 825,648 886,295 922,428 909,051 940,673
Motorcycles 2,887,194 3,647,493 4,170,445 4,964,753 5,810,599 6,553,664
Mopeds 408,263 338,985 307,509 322,584 332,741 355,870
Electric Two Wheelers – – – – – 7,341
Total Two Wheelers 4,203,725 4,812,126 5,364,249 6,209,765 7,052,391 7,857,548
Automobile Domestic Sales Trends in number of vehicles
The graph shows an annual growth in volume between 11 and 16% annually.
Segmental Growth of the Indian Two Wheeler Industry (FY1995-2004)
This allows us to conclude that the motorcycle industry is reaching maturity stage in India.
Ten years ago the industry grew over 25% annually.
Now, annual growth in volume is declining, hovering around 13%, while the growth in
other motorized vehicles, especially automobiles, is growing and is expected to reach 22%
in 2007.
3.1.3. Scope of competitive Rivalry – Rivals
In the mid-1980s, the Indian government regulations changed and permitted foreign
companies to enter the Indian market through minority joint ventures.
The two-wheeler market changed with four Indo-Japanese joint ventures:
Hero Honda, TVS Suzuki, Bajaj Kawasaki and Kinetic Honda.
The entry of these Japanese companies changed the Indian market dynamics from the
supply side to the demand side.
Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005)
3.1.4. Buyers needs and requirements
Two wheelers remain the transportation mode of choice for the Indian consumer.
Buyer need is mainly driven by fuel economy and reliability. Buyers need also shifting
towards features as the income level is increasing in the middle class segment.
3.1.5. Pace of technological change/Product Innovation.
Advancing technology plays an important role in the battle for market share.
The fuel efficiency which first gave Hero Honda an edge in the nineties, was soon matched
by the competition, and e.g. TVS-Suzuki leveraged in the nineties on its design and
engineering skills to produce a motorcycle that managed to grab market share from Hero
Honda.
New technology that drives better engineering design and more fuel economy plays a
major role to capture market. Hero Honda often bought services from external consultants
to improve its production process and technology
3.1.6. Vertical Integration.
Hero Honda is more vertically integrated than some of its competitors, giving the company
and edge.
The Munjal family have steel companies that roll their own steel, own free-wheel and
